SEBI Categorization of Mutual Funds

SEBI has changed the categorization of mutual funds to improve clarity and risk disclosure for investors. Mutual funds are now classified into five categories: Equity, Debt, Hybrid, Solution Oriented and Others.
Scheme names have also been changed to indicate the risk involved in the investment clearly.
A lock-in period has been introduced for Solution Oriented Schemes like children’s funds and retirement funds. But the lock-in period does not apply to existing investors.
Fund houses must also modify other aspects of the scheme, such as investment mandate, benchmark, and investment strategy, to align with the new regulation.

The new categories and the sub categories of mutual fund schemes are as follows:
Equity Mutual Fund: 10 Subcategories – large-cap, large & mid-cap, mid-cap, small-cap, multi-cap, focussed, value, contra, dividend yield, sectoral/thematic and ELSS funds.
Debt Mutual Fund: 16 Subcategories – overnight, liquid, money market, ultra-short duration, low duration, short duration, medium duration, medium to long duration, long duration, corporate bond, dynamic bond, credit risk, floater, banking & PSU, Gilt Fund, and Gilt fund with 10-year constant duration.
Hybrid Mutual Fund: 6 Subcategories – conservative hybrid, balanced hybrid, balanced advantage, aggressive hybrid, multi-asset allocation, arbitrage and equity savings fund.
Solution-Oriented Funds: 2 Subcategories – Retirement and Children’s fund. These schemes have a lock-in period of at least 5 years. 
Other Funds: 2 Subcategories – Index and Fund of Funds.

SEBI’s categorization and rationalization of mutual fund schemes will provide clarity for investors and assist them in selecting a fund that aligns with their investment goals. The changes in the mutual fund industry include: portfolio restructuring, improved understanding of risk, reduction of mis-selling, and an increase in assets under management.